Good decision, SBI: Bank quietly buries its controversial $1 bn loan pact with Adani

The $1 billion loan pact the Adani group had signed with SBI, the country’s largest lender, has been given a quiet burial, an article in the Mint daily says today. “Neither the lender nor the borrower is keen to follow up the agreement that raked up a huge controversy,” the article says. The agreement, signed in November 2014, was aimed at funding the group’s $7 billion coal project in Australia, which involves rail, port and mining projects. Interestingly, the MoU between the two was announced when Gautam Adani, the chief of the Adani group, was in Melbourne as part of a business delegation to attend G20 summit, which was attended by prime minister Narendra Modi too. [caption id=“attachment_2203946” align=“alignleft” width=“380”]  Reuters[/caption] The announcement had kicked up huge controversy in India after the Congress questioned “the propriety of SBI giving the loan to Adani …at a time when some five foreign banks have denied credit to the group for the project”. What muddied the waters was Adani’s perceived closeness to Modi. The bank’s decision to give the loan had come at a time when the coal prices had hit a five-and-half-year-low and the rivals had stalled such projects, Reuters said. Moreover, as this Firstpost report explains, the agreement for the loan, which could have been the largest given by a domestic bank for an overseas project, was signed disregarding the fact that the company’s ability to service its debt is doubtful. The group then had a debt of Rs 72,632.37 crore. Ever since the loan agreement became controversial, there have been rumours that the bank is not really interested in going ahead with the loan. However, chairman Arundhati Bhhattacharya has strongly denied such rumours. “It’s all gossip. There is no fact (in news reports),” she told PTI on 14 March, a day after Reuters reported from Singapore that SBI is likely to turn down Adani’s $1 billion loan request for the Australian project. However, now SBI has decided not to give any money to the group as it did not get all the information it sought from the company, the Mint article says. The project as such was in the eye of a storm with environment groups opposing it over the alleged adverse impact it is likely to have the Great Barrier Reef. What had resulted in considerable heartburn among political critics of the SBI’s decision was the presence of Modi when the loan was announced. It had given rise to suspicion that the loan agreement was signed due to political pressure and hence not a wise business decision. Interestingly, Modi has been promising the banks freedom to take business decisions. At the Gyan Sangam in Pune, where Modi met bankers in, the prime minister assured bankers that there will be no interference from the government - not even from the Prime Minister’s Office -  in their functioning. So has Modi’s decision to keep politics away from business decisions of banks already started working? Too early to make any such conclusions because the government continues to be the majority stake holder in all the state-run banks. But if indeed SBI has decided to kill the loan agreement with Adani, it definitely is a good business decision. Read the entire Mint article here.